Date: September 24, 2012
To: Member/Owner Credit Union
In my August 22, 2012, letter, I outlined a number of initiatives Corporate America is focusing on in the near term. It has been a month since that communication and a lot has taken place, so it’s time to provide an update.
- Balance sheet strength – With the ongoing sale of certain bonds to achieve compliance with regulatory obligor limitations, CACU is restructuring its investment holdings with a bias toward short-term, highly liquid investments. As a result of the weighted average life restrictions in Part 704, we mustlimit investment holdings to securities with shorter weighted average lives in the base case, and with little to no extension when shocked using a 50 percent slowdown in prepayments. The yield on the bonds that are targeted for sale as a result of the obligor concentration limits are well above those that can be received in today’s market; however, the targeted bonds have extended weighted averages lives, so more dollars currently held in cash can be invested to offset the yield reductions. There is no perfect match to replace these yields, but CACU is replacing illiquid long-term securities with highly liquid, shorter-term holdings.
In the short term, the targeted sales needed to achieve regulatory compliance will result in market losses. These losses will continue during fourth-quarter 2012, but not beyond. As CACU starts 2013, its balance sheet will materially complywith regulatory limitations, and will be both highly liquid and not prone to significant basis risk.
- Product and Service fees – We communicated the revised fee structure to our member credit unions, and we appreciate your understanding of the need for these minor increases. It is never easy to raise fees; however, as you know fees do vary and reflect the cost of doing business. As I noted in my August message, we continue to be focused on maintaining low fees by ensuring an efficient operation and managing our risk at appropriate levels.
- Reduce/retire regulatory waivers – In August, I reported ongoing waivers related to compliance with obligor concentration limits, non-liquidity borrowing limits, and one investment action plan (IAP). On September 12, 2012 we resolved the IAP by selling the bonds related to that issue. These are the same bonds thatimpacted our December 31, 2011 financials, due to our external auditor requiring us to book OTTI at year end. The sale not only resulted in the recovery of the 2011 OTTI ($1.97 million), but an additional gain of $1.12 million. These gains will be reflected in our September 2012 financial reports. Additional progress was made in our efforts to reduce our obligor concentrations during August. Specific exposures were reduced by $33,165,415, resulting in a loss of $1,836,109 which you will see in our August financial reports. These losses are more than offset by the gains from the sale of the IAP securities. We continue efforts to reduce our obligor concentrations with a goal of full compliance by December 31, 2012.
- Regulatory relations – I believe clear and open communication is the primary step in maintaining an appropriate business and regulatory relationship. No one likes surprises including you, our member/owners, as well as our regulators. My communications detailing our plans, challenges, and actions are one way to ensure everyone is informed. Another way is through the meetings I’ve been holding with our members to discuss in detail the items noted in this and earlier messages. We continue working with ACUA and NCUA to improve our communications, mutual respect, and trust. Your Board has directed me to do everything possible to ensure our membership and regulators are informed about our efforts and initiatives, and I am pleased to do so.
- Future plans/direction – We have made significant progress toward achieving the objectives detailed to you in my August 22 letter. We continue moving forward and are making every effort to ensure any change in process or practice is done to make certain you continue to receive the highest level of service from CACU. We are performing due diligence on various mobile banking vendors with plans to provide a cost-affordable offering to our members in the near future.
We continue to look forward and work every day to make CACU the best it can be. At CACU, our first priority is – and will continue to be – to ensure that we have the strength, capabilities, and staff required to meet your credit union’s need for first-rate, cost-effective financial products and services. This letter is part of my promise to keep you, our member/owners, informed about CACU’s operations, plans and challenges as we continue to build for our collective future. In the meantime, if we may be of service, please don’t hesitate to contact us.
Daniel J. Buckley
Interim President/Chief Executive Officer